Indian Economy - News & Updates - Archive

[Neo]

What India must do to modernise​

Daily Times Monitor

Historically, successful development has involved exporting labour-intensive manufactures. Despite opening up to the world economy in many respects, India’s policies continue to retard the expansion of labour-intensive sectors. Here is a discussion of how India could speed its transition to a modern economy.

A key advantage claimed for the outward-oriented development strategy is that it allows poor, labour-abundant countries to specialise in labour-intensive products and, thus make efficient use of limited capital stocks. To quote Anne O. Kruger (1985), “An export-oriented strategy permits countries to use the international market to exchange their own, relatively labour-intensive commodities for capital-intensive goods.

They are thus able to take advantage of the division of labour and specialisation. This ability contrasts sharply with import-substitution policies under which labour-abundant developing countries produce the entire spectrum of manufacturing goods and experience high and rising capital/labour ratios.”

The experiences of South Korea, Taiwan, Brazil and most recently China offer broad support to this claim. Increasing shares of industry in GDP in general and of labour-intensive manufactures in particular accompanied the adoption of outward-oriented strategies in these countries. Exports of unskilled-labour-intensive products such as apparel, footwear, toys and numerous light manufactures expanded rapidly.

India’s recent engagement with the world economy has produced a contrasting pattern, however.

Contrary to the impression in many circles, India’s industrial and services sectors are almost as open as those of China. The simple average of industrial tariffs is 12% compared with 9% in China. The highest industrial tariff rate (with tariff peaks in several sectors) has been brought down to 10%. In fiscal year 2005-06, custom duty as a proportion of merchandise imports was just 4.9%. With some negative-list exceptions—most notably multi-product retail—the goods and services sectors are quite open to foreign investment. Only in exceptional cases such as insurance and media the sectoral cap on foreign investment caps are below 51% and in most cases go up to 100%. While this opening-up has been accompanied by acceleration in growth to 6.3% during the last two decades and to almost 9% in the last four years, India’s experience differs from that of China in at least three important respects. First, while India has seen the share of agriculture in the GDP decline, it has not experienced perceptible rise in the share of manufactures.

Second, exports out of and direct foreign investment (***) into India have not seen the same rapid expansion as that seen in the case of China. Finally, fast-growing exports from India have been either capital-intensive or skilled-labour intensive. The shift in favour of unskilled-labour-intensive products traditionally observed in response to the adoption of outward-oriented polices has not happened in India.

Indian exceptions: The share of manufacturing in the GDP in India has been stagnant at 17% since the early 1990s. In China, this share stood at a hefty 41% in 2006. India’s leading and fast-growing exports, such as engineering goods, petroleum products, gems and jewelry, and software, are either capital-intensive or skilled-labour intensive. The share of textiles and textile products in total merchandise exports has declined to 15% in 2005-06 from 20% in 2003-04. Within this category, unskilled-labour-intensive ready-made garments account for only half of the exports. In contrast, the export pattern of China quickly adjusted to its factor endowments after it began opening up its economy in the late 1970s and early 1980s.

First, exports of textiles, apparel, toys, sports goods and footwear surged. Then in the 2000s, with rising skill endowments, it moved into more sophisticated assembly operations such as office machinery, telecommunications and electrical machinery.

The most dramatic difference between India and China lies in the magnitude of international economic engagement. One measure of this difference is that the annual expansion in China’s trade has been larger than India’s total annual trade during last several years. For instance, China’s merchandise exports expanded by $169 billion to $762 billion in 2005 in comparison to India’s total merchandise exports of $103 billion in 2005-06. Equally dramatic are Figures 1 and 2 with the former showing the evolution of China and India’s two largest merchandise exports and the latter depicting *** inflows. What holds back India?: How do we explain these differences in the response to trade openness of two economies with very similar factor endowments? The key to answering this question is the poor response of large-scale labour-intensive manufacturing including assembly and processing activities in India. As per the conventional wisdom, these activities have served as the magnet for *** and a conduit for rapid expansion of exports in China. But this has not happened in India. Large-scale labour-intensive manufacturing activities have been virtually absent from India. Apparel factories employing thousands of workers under a single roof found in China are non-existent in India.

While high growth has helped India bring its poverty ratio (the proportion of the poor below the official poverty line) down from 36% in 1993-94 to 27% in 2004-05, its transition to a modern economy remains problematic: it must still move the vast majority of its workforce out of farming into non-farming activities. With the services leg doing all of the walking, the economy can only limp along towards this transition. For a more rapid transformation, India must walk on two legs. That means more rapid growth of the labour-intensive manufacturing.

Daily Times - Leading News Resource of Pakistan

 

[Bushroda]

India posts strong growth in earnings from tourism
14 Jan, 2008

NEW DELHI: India's foreign tourism revenues grew by a record 33.8 per cent in 2007 amid a big campaign by the country to draw more overseas visitors.

Foreign exchange earned from tourism climbed to $11.96 billion last year from $8.93 billion the previous year.

Foreign tourism revenues grew by 19.2 per cent year on year in 2006. "The year 2007 witnessed a remarkable growth in the tourism sector in terms of foreign exchange and foreign tourist arrivals," said a government official.

The number of foreign arrivals rose by more than 12 per cent to touch five million last year from the 4.45 million tourists who travelled to India in 2006.

Tourism industry officials, however, warn the government's drive to bolster the sector could suffer if it does not improve India's shabby airports and other infrastructure.

 

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The new Asian tiger poised to match China
Randeep Ramesh in Delhi
The Guardian, UK
Saturday January 19, 2008

It took one minute to sell all $3bn (£1.53bn) worth of shares to the public in India's biggest share floatation. The buying frenzy of stock in Reliance Power will almost certainly see 48-year-old Anil Ambani overtake his older brother Mukesh to become the country's richest man with a fortune of more than $60bn when the shares debut on the Bombay stock exchange later this month.

What is remarkable is that Indians have been buying into a company that has little more than a famous name, Reliance, and big ambitions. The soaring stockmarket is a symptom of India's overflowing optimism. Little wonder that Gordon Brown, who arrives in the country tomorrow night, has decided to make India the second stop on his Asian tour. The prime minister will be accompanied by a big trade delegation attracted by a burgeoning middle class in the nation of 1.1 billion people. They are not alone in vying to cash in on India's wealth - Nicolas Sarkozy, the French president, will visit next week.

India is experiencing a rapid and sustained rise in living standards for the first time in centuries. The economy is poised to expand by 9%, a rate second only to China. Every day the newspapers produce a diet of good news obscuring the poverty. Tata, India's industrial powerhouse, produces the world's cheapest car, and will soon own the exclusive marques of Jaguar and Land Rover. In sport billionaire telecom magnate Sunil Mittal has set aside £25m to send India's football team to the world cup in 2018. Another billionaire, liquor baron Vijay Mallaya, has spent £100m buying a formula one team and aims to build a racetrack in Mumbai by 2010.

In the same way as commentators refer to the 1900s as the "American century", the 21st century is forecast to be Asian. If the scale and speed of growth can be maintained on both sides of the Himalayas by 2050 Beijing and Delhi will be the capitals of the world's two richest nations.

Some commentators say India will soon eclipse its larger northern neighbour. Surjit Bhalla, an economist, says its poorer, younger and larger workforce means India will catch up with China by 2010. "There are no growth miracles here," said Bhalla, author of the book Second Among Equals: the Rise of the Middle Class Kingdoms. "What we are seeing is the creation of a new middle class in these two countries that is driving growth globally. By middle class I mean people with eight dollars a day to spend in disposable income. Which means foreign companies can sell them watches, cars, computers."

The surge in demand for consumer goods has tripled mobile-phone use in two years. The Indian car market is forecast to become the fastest-growing in the world. The country's myriad social problems - illiteracy, hunger, caste violence and penury - still exist but policymakers now believe they can be overcome.

 

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Nano makes it to Time’s most important cars of all time
AS THE DEBATE GOES ON…
S. Muralidhar
Chennai, Jan. 17

One week after its unveiling, the world’s media is still agog with news and views about the Tata Nano. Many termed it a cute, ultra-cheap car that will revolutionise personal transportation in India and Asia and many others are calling it a glorified go-kart that will be unreliable and unsafe.

The debate is still raging in all sorts of media - print, TV and the Internet.

Online polls that ask Americans if they will buy one if and when the Nano is launched in that market, blogs that have postings, which swing from patriotic praise to outright hatred and discussion forums that are still witness to heated arguments about the promise and fallout of the car are keeping the Tata car in the thick of it all. The Nano has probably got more media attention than it bargained for. But, it was only to be expected with the Nano’s much-publicised price tag making it the cheapest car of the world.

Competitors who have in the past sworn that it is an impossibility to develop a $2,500 car have reacted to the Nano as far away as Detroit – the home of the American automobile industry.

At the North American International Auto Show, which is currently on at Detroit, the hot car being discussed was the Nano, where it is not even on display.

Interestingly, the notoriously taciturn, Toyota Motor Corporation and its President, Mr Katsuaki Watanabe, also reacted to the Nano saying that the world’s number two car maker will need a little more time to develop vehicles at this kind of price point. It is reported that he also added that an early prototype of a Toyota small car that will be made specifically for markets such as India is close to getting a “go sign”.

In the midst of all this attention that the Nano is still getting, comes one of the first recognitions of its potential to create history.

In a presentation titled ‘The dozen most important cars of all time starting from 1908 to the present’, Time magazine lists the Tata Nano along with legendary cars like the Ford Model T, the Volkswagen Beetle, Chevy Belair, Toyota Corolla, the Mini and the Honda Civic.

Listing the 12 cars in chronological order, the Time magazine presentation says only these ‘few automobiles have been able to fundamentally change the way we live and dream’. As for the Nano, Time says “India’s ‘people’s car’, as it is already dubbed, is intended to put motoring within reach of Asia’s masses.

At $2,500 it’s hard to see it how it won’t sell, but even if it doesn’t it will become the poster car for a new, stripped-back style of engineering — glue instead of welds! — that could change the world.”

 

[Bushroda]

India plans $500bn infrastructure push
David Rothnie
Financial News Online, US
21 Jan 2008

Government wants to use $5bn of foreign exchange reserves to boost transport and utilities

The Indian Government is close to launching an investment vehicle in London to use $5bn (€3.4bn) of the country’s foreign exchange reserves as a contribution towards a $492bn investment plan over the next five years for India’s roads, railways and airports.

The special purpose vehicle, which will be a subsidiary of the Government-owned India Infrastructure Finance Company, has gained UK regulatory approval and is expected to open for business next month, according to S S Kohli, chairman and managing director of IIFC.

The company wants to hire advisers and has set a deadline of Friday for expressions of interest. Kohli used to work for the Punjab National Bank and said the subsidiary may take temporary offices in the City of London.

N K Madan, who will be managing director of the subsidiary, said: “The subsidiary is likely to be incorporated in about a month’s time. Initial operations of the entity may start with a staff of between three and four officials.”

The Indian Government estimates an investment of about $492bn will be needed by the end of 2012 to upgrade the country’s roads, ports and airports. In its annual policy statement for 2008, the Reserve Bank of India warned that “infrastructure bottlenecks are emerging as the single most important constraint on the Indian economy”.

Kohli said the London-based subsidiary will function by borrowing funds from the Reserve Bank, custodian of the country’s $272bn worth of foreign currency reserves, in the form of long-term securities.

The fund will then provide foreign currency funds to Indian companies engaged in the infrastructure sector and has set aside an initial investment of $5bn from the reserves to fund domestic projects.

The initiative will run in addition to the $5bn infrastructure fund the IIFC started raising in India last year with investments from the Blackstone Group and Citigroup. Kohli said: “We have held negotiations with a number of other banks, including Deutsche Bank, regarding investments and have secured $2bn from Australia’s Macquarie Bank this month.”

As a result of the Goverment’s investment plans, more foreign and domestic private investors are raising similar funds. Private equity group 3i raised $1bn last year. GE plans to create an infrastructure fund of between $300m and $500m, while ICICI Bank, India’s second largest bank, announced plans for a $2bn fund last September.

Investment banks are attracted to India’s booming economy, which is expected to grow at 8% a year until 2020, according to projections by Jim O’Neil, head of global economic research at Goldman Sachs. He said India’s equity market has risen 499% since Goldman categorised it as one of the Bric economies in 2001.

Its growth has led to a surplus in foreign exchange reserves, but unlike its fellow Bric countries Russia and China, India has no dedicated sovereign wealth fund.

 

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RMC cashes in on Indian retail boom
By Colin Donald, Business Correspondent
Scotsman, UK

STIRLING-BASED specialist recruitment firm, Retail Management Consultants (RMC), is targeting a three-fold turnover increase over three years as it spearheads the UK sector's expansion into Asia.
The £1 million-turnover family firm, which was established in Stirling in 1986 and has outposts in London and Manchester, has opened an office in Mumbai in India, building on a long association with the leaders in the high-growth Indian retail sector.

Joseph Leftwich, senior consultant for RMC and son of the founders Julia and Alex Leftwich, told The Scotsman: "We are now incorporated as an Indian business, but our interest in the subcontinent started eight or nine years ago.

"Our first involvement was with the chain Shoppers' Stop, who really invented modern retail in India.

"Hundreds more opportunities have since sprung up and we are working with the other top Indian retailers, Future Group, better known as Pantaloon, and another called Spinach."

Leftwich, whose brother Daniel also helps run the business, continued: "The UK and other western European retail markets are relatively mature. While they still offer opportunities for growth, the greatest challenges today and in the future, lie in Asia – China and India in particular.

"India's economy is growing at a phenomenal rate. GDP growth has exceeded 9 per cent for the last four years. India's retail sector experienced growth last year in excess of 40 per cent and is still gathering speed."

RMC, which recruits executives for the retail, property and logistics sectors, has received the support of Scottish Enterprise Forth Valley, allowing the firm to boost its overseas marketing capacity.

The company's client portfolio spans Europe, the Middle East and Asia, but its founders insist that it "remains a family-run business with a strong desire to retain its HQ in Scotland".

Stuart Ogg, head of Scottish Enterprise Forth Valley, called RMC "an excellent example of globalisat
ion by a small, growing company in the forefront of its field".

Ogg added: "RMC has realised the tremendous opportunities for companies who take the time and effort to research and implement a strategy for new markets."

India's post-liberalisation boom, which has famously benefited IT, business process outsourcing and financial services, has created an increasingly affluent middle class, creating what RMC calls "an unprecedented demand for a modern shopping experience".

Leftwich said there were "significant costs involved" in establishing an Indian office as "accommodation and commercial property costs are as high in Mumbai as they are in London or Manhattan".

But he said that, as well as riding on the growth of Indian retail, the move would present RMC with an outpost from which to explore further Asian expansion, possibly in the promising Malaysian and Vietnamese markets.

 

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India trade ties offer a cushion
Jason Koutsoukis
The Age, Australia
January 20, 2008

FEDERAL Treasurer Wayne Swan has signalled a major shift in Australia's international focus towards India, with hopes the world's fifth-largest economy may cushion Australia from a global economic downturn.

With the local sharemarket in freefall for 10 consecutive days and more bad economic news out of the US clouding Australia's economic future, Mr Swan told The Sunday Age that India presented a massive economic opportunity.

"Australia has a golden opportunity to work more closely with India to pursue our common economic interests," Mr Swan said.

"I want to explore ways to institute closer ties between the Indian Ministry of Finance and the Commonwealth Treasury."

According to most credible projections, India will be the world's second largest economy, behind China, by 2050, with developments there to have a major impact on Australia's economic prospects.

Already Australia's fastest growing export market over the past five years and now the fourth-largest export destination for goods, Mr Swan revealed that he has moved to establish contact with Indian Finance Minister Palaniappan Chidambaram to institute closer economic ties.

This will include working closely with India in international forums such as the G20 forum of finance ministers and central bank governors.

"Part of the Rudd Government's mission is to modernise the economy, so modernising our relationships with key economies is a vital component of that," Mr Swan said.

"My cabinet colleagues and I know how crucial the Indian economic relationship is to the prosperity we build for families into the future."

Mr Swan's focus on India follows Trade Minister Simon Crean's first official visit to India last week, where he held meetings with Indian officials and business leaders.

India is Australia's fastest growing major market for both goods and services, increasing at a rate of more than 30% a year.

Foreign Minister Stephen Smith also highlighted Australia's keen interest in India when appointed late last year.

With the Indian market now at 1.13 billion people, bilateral trade in goods between India and Australia reached $11.4 billion last year, of which $10.1 billion were exports to India including goods such as gold, coal, copper and wool.

Australia also exported about $1.7 billion in services, the bulk of which was related to the education sector.

But with the Rudd Government already signalling it would not sell uranium to India while it was not a signatory to the Nuclear Non-Proliferation Treaty, some analysts tip this tough stance could jeopardise closer economic relations between the two countries.

"That's all the Indians want out of Australia," a well-placed source with the Department of Foreign Affairs and Trade said. "And until we agree to sell them uranium and support them through the Nuclear Suppliers Group, they won't be doing much to help us."

Mr Swan's focus on India was welcomed by the Australia-India Business Council. The council president Brian Hayes, QC, said there was enormous potential to harness the cultural symmetry between the two countries.

"We have put behind us the political inertia, which developed in 1986 when India was having serious problems with Pakistan," Mr Hayes said.

"The obvious common features such as democratic government and rule of law are very conducive to doing business and contrasted with China where there are some obvious hurdles."

 

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Rupee climbs against dollar
22 Jan 2008, 2000 hrs IST,REUTERS

MUMBAI: The rupee rebounded from a two month low on Tuesday after local shares pared losses from an early slump, and traders suspected the central bank pumped in dollars to calm jitters.

The partially convertible rupee ended at $39.48/49, up 0.2 per cent from Monday's close of 39.555/565 and well off an intraday low of 39.78, which was the weakest since November 29.

It had hit a near decade high of 39.16 in early November. Shares plunged nearly 13 per cent in early trade on a global rout, but bounced back to limit losses to 5 per cent at close after state insurance firms led buyers back.

"Recovery in shares in the afternoon helped sentiment. But sustained dollar selling by a few public sector banks, which I strongly feel was on behalf of RBI was the real sentiment booster," a senior dealer with a foreign bank said, referring to the Reserve Bank of India.

Traders said the dollar supplies encouraged exporters to sell the US unit, on expectations the rupee was likely to rise in the coming months. Foreigners sold $1.4 billion worth of Indian shares in the last three days of last week.

In 2007, foreign funds bought a record $17.4 billion of stocks, and this was a key driver for the rupee's rise of more than 12 per cent. Analysts expect the rupee to rise in the medium-term.

"We look for dollar-rupee to reach 36 at end 2008 and 35 at end-2009, which is consistent with our optimistic medium term outlook for the Indian economy," Sebastien Barbe at Calyon Bank said in a research note on Tuesday.

 

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Investors lose over $300 bn in six days
Press Trust Of India
Mumbai, January 21, 2008
21/1/2008

Investors on Dalal Street have lost over 300 billion dollar (Rs 11,85,285 crore) in the last six days with more than half of the loss coming from Monday's fall of the benchmark index Sensex--its biggest ever.

The 30-share index Sensex today witnessed a fall of 1,400 points, tumbling below the 18,000-point to close at 17,605.35. The huge drop in the index was led by blue chip heavyweights - Reliance Energy, ACC, Bajaj Auto, DLF and Reliance Industries.

The Sensex has lost 3,222.1 points in last six trading sessions, while investors' wealth -- measured in terms of cumulative market capitalisation of all the listed companies -- has declined by Rs 11,85,285.46 crore.

The total market capitalisation stood at Rs 59,53,525.87 crore at the end of Monday's trading against Rs 71,38,810 crore before bourses began business last week on January 14.

While, the investors have lost a whopping Rs 6,63,975 crore in just one trading session from market cap of Rs 66,17,501.33 crore on Friday last week. The investors had lost over 5,21,310 crore in the five trading sessions last week.

According to market analysts, the major fall has been mainly due to the slowdown concerns in the US economy among other factors.

"The major factors behind today's market meltdown are US recession and margin call, besides panic selling has also crept in...All the major Asian markets are crackling like anything," Asika Stock Brokers' Paras Bodhra said.

 

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India's 3 largest IT firms earn US$4 bln so far this fiscal year
Monday, January 21, 2008

NEW DELHI, Jan 22, 2008 (Asia In Focus via COMTEX) -- WIT | news | PowerRating | PR Charts -- Despite a significant rise in rupee and turmoil in the US economy hurting the Indian IT sector, the country's top three software firms have added over US$1 billion to their third-quarter turnover, taking their total to more than US$4 billion in the current fiscal year. The collective revenue of TATA CONSULTANCY SERVICE (BSE:532540), INFOSYS (BSE:500209) and WIPRO (BSE:507685) rose to Rs 15,903 crore (US$4.04 billion) in the third fiscal quarter ended December 2007, as against less than US$3 billion (Rs 12,679 crore) in the year-ago period, a 25.4 per cent year-on-year growth in their combined third quarter revenue.

* Wipro, the country's third-largest software exporter, on Friday reported a total income of Rs 5,433 crore - the highest third-quarter figure among the three, rising nearly 34 per cent from Rs 4,055 crore in the year-ago period.

* While TCS' Q3 revenue rose 23 per cent from Rs 4,910 crore, that of Infosys spurted nearly 20 per cent from Rs 3,714 crore in the third quarter of last fiscal year.

 

[Bushroda]

China Should Be Afraid of India's New $2,500 Car
William Pesek
Jan. 23 (Bloomberg)

The West seems thoroughly unimpressed by India's $2,500 car.

The media focused on the environmental evils of millions of Indian households owning Tata Motors Ltd.'s Nano. A Washington Post headline said it all: "It Costs Just $2,500. It's Cute as a Bug. And It Could Mean Global Disaster.'' Others dismiss it as the Yugo of our times -- a lemon destined to fail.

Missed in all the incredulity is that Tata's new vehicle is an engineering marvel that speaks volumes about India's economy. China's too.

Sure, the "People's Car'' is cheap and tiny and probably wouldn't thrive in showrooms in Miami or Paris. Commentators in India have called it a feat of "Gandhian engineering,'' meaning unpretentious and stripped down. For many automobile enthusiasts, the two-cylinder, no-frills car will seem a bit too egalitarian.

Yet the Nano is an example of the reverse technology needed to reach the market that Paul Collier wrote about in his book "The Bottom Billion.'' Tata Chairman Ratan Tata is reminding the world that there's great potential in expanding markets to low- income consumers who don't much interest the West.

What's more, Tata's feat is a reminder that India's economy is far more than just service centers and information-technology companies. India boasts an engineering prowess that may continue to confound naysayers, create well-paid jobs and accelerate the growth of the middle class.

'Rising Elephant'

Officials in Beijing may want to take their gaze off the 2008 Olympics for a moment to ponder all this. While China gets most of the headlines and foreign investment, India is quietly raising its economic game.

It won't come as a surprise to fans of Ashutosh Sheshabalaya's 2004 book "Rising Elephant,'' which argued that India is doing with high-tech and engineering know-how what Japan did with cars. To him, Tata's Nano proves the point.

"This is not a tsunami in the making,'' Sheshabalaya wrote on TheGlobalist.com last week. "Rather, it underscores how India leverages its white-collar strengths in the knowledge economy to exert a powerful force on global blue-collar manufacturing. In doing so, it engages in a diametrically opposite direction from China. Along the way, India will spring some wholly new surprises.''

Chindia

China is the world's factory floor; India is its back office. This adage is looking dated as the Nano prepares to hit the roads of Asia's third-largest economy. It's likely that Tata, by "Bangaloring'' the global car market, will accelerate an innovative revolution among makers of everything from computers to motorbikes to air conditioners to microwaves to televisions.

The China-versus-India debates of a few years ago have largely given way to talk of "Chindia.'' Indian Prime Minister Manmohan Singh ended a recent trip to China amid talk of a "high-quality'' regional trade agreement and "shared vision for the 21st century.''

China can still learn from India, just as India can benefit from studying its neighbor's successes. China has a huge head start when it comes to the roads, bridges, ports and power systems needed to raise living standards. China also receives the bulk of Asia-bound investment.

Yet India has done better in creating a genuine economy that produces globally competitive companies and innovative products. Armed with more than $1.5 trillion of currency reserves, China seems more interested in buying overseas enterprises than building local ones that provide jobs and wealth.

Macro Story

India is far less reliant on exports, has better demographics and is making strides toward creating a consumer market. India's middle class -- those with annual disposable incomes of between $4,380 and $21,890 in current dollars -- will increase more than 10-fold to 583 million by 2025, estimates New York-based consulting firm McKinsey & Co.

Officials in New Delhi are getting their macro-economic act together. India has long been a good micro story thanks to the rule of law, good companies and the checks and balances that come with democracy. Its macro development -- stable growth, acceptable inflation, foreign-direct investment -- has been less impressive.

India's macro story is increasingly complementing the micro one. Efforts to raise the limit on foreign equity stakes in local insurers to 49 percent from 26 percent and letting overseas lenders increase holdings in India's private banks may reap important benefits. Foreign participation in telecommunications helped India become the world's third-largest user of telecom services and the fastest-growing wireless market.

Environmental Concerns

There are plenty of opportunities for India's notorious bureaucracy to muck things up. Tata's Nano offers a model that can be emulated in the private sector if the government does more to build good roads and ports, and train new generations of skilled managers.

Also, the Nano isn't all good news. Rajendra Pachauri, chairman of the UN climate-change panel that shared last year's Nobel Peace Prize with Al Gore, has said "I am having nightmares'' over the environmental risks posed by such a car.

This is still a Henry Ford moment of sorts for India, and investors who miss it may have regrets in the years to come. That goes for China's leaders, too.

 

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Halal Street: 7-month labour lost in 7 sessions
January 22, 2008 18:29 IST

The slaughter in the stock market over the past seven trading sessions has wiped out what the Sensex had gained in more than seven months since July 2007.

In its seventh straight loss, the market benchmark Sensex on Tuesday lost as much as 2,273 points in intra-day trade and, despite a sharp recovery, settled 875.41 points below Monday's closing.

The 30-share index has lost 4,097.51 points in seven sessions since January 14. It was down as much as 5,874.35 points from its life-time high of 21,206.77 points, scaled on January 10, when it touched an intra-day low of 15,332.42 points on Tuesday. The Sensex had first touched this level on July 16, soon after it crossed the 15,000 level on July 6.

Incidentally, when the Sensex crossed 15,000, analysts were bullish on the Sensex crossing even the 50,000 level in the years to come. However, in the past eight days, ever since the downslide began, the Sensex has slipped from above 21,000 to below 16,000-point mark.

This plunge has also led to the mood turning bearish and some of the market players are predicting that some further "correction" might be in store.

"The downward spiralling in the market is likely to continue for the next three-four days. A lot depends on how the US market performs when it reopens today after a gap of three days," Taurus Asset Management Co's Managing Director R K Gupta said.

 

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Olympus and Contango explore India
Ruth Liew
Financial Stadard, Australia
Thursday, 24 Jan 2008

Specialist fund managers Olympus Funds Management and Contango Capital Partners have joined forces to unlock the gates of India’s investment market to Australian investors.

Contango recently acquired a 64 per cent stake in Olympus, an Indian investment specialist fund manager.

“Contango’s mandate is to invest in emerging fund managers, and we fit into their criteria as a business. We’re one of the few local fund managers focusing intently at emerging markets so this is a mutually beneficial partnership,” said John Peirera, managing director Olympus.

In April 2007, Olympus launched the India Equities Fund, Australia’s first listed investment vehicle dedicated to Indian equities. After raising $75 million at its launch, the India Equities Fund now holds more than $110 million in assets, while its NTA has risen from 94.3c to $1.47 by the end of last year.

Olympus also possesses ties with Indian financial services conglomerate Kotak Mahindra, and together with Kotak plans to pave the way for Australian investors interested in capitalising on investment opportunities in India.

“The Indian share market has performed extremely well and the Indian economy remains very strong. Although Australian investors are currently underinvested in emerging markets, we expect this situation to change as emerging markets, particularly in Asia, continue to outperform developed countries,” said David Stevens, director of Contango.

“For a small manager like us, [the partnership] is fantastic because we get a larger player coming in to provide stewardship and an injection of capital that we can use to expand our business,” said Peirera.

 

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Renault-Nissan to Proceed With Rival to Tata's Nano
By Michael McKee and Laurence Frost

Jan. 23 (Bloomberg) -- Renault SA and Japanese affiliate Nissan Motor Co. will proceed with building an ultra low-cost car to rival the Nano unveiled by India's Tata Motors Ltd., Chief Executive Officer Carlos Ghosn said.

"We'll go ahead with it,'' said Ghosn, who heads the second-largest French carmaker and Tokyo-based Nissan, in an interview with Bloomberg Television at the World Economic Forum in Davos, Switzerland.

Renault and Nissan are looking for sales growth in emerging markets to make up for stagnating demand in their home countries and the dollar's declines against the yen, which undermines the value of Nissan's North American earnings. The Nano, which Tata plans to price at about $2,500, may upstage Renault's no-frills Logan, which costs buyers about four times as much.

"You're going to see Renault and Nissan coming with a different car in the same price range for the Indian market,'' said Ghosn, adding that the model will go on sale "within a year and a half'' of the Nano's scheduled introduction in late 2008.

The 30-horsepower Nano, presented Jan. 10 at the Delhi motor show, will cut the entry price for aspiring car owners by more than half in India, one of the world's fastest-growing car markets. The Logan's price in Europe is 8,000 euros ($11,600).

Renault, Nissan and Bajaj Auto Ltd., India's second-largest motorcycle maker, have been conducting a feasibility study since late last year on possible joint production of a $3,000 car. Ghosn didn't give details on any factory site or partners.

U.S. Forecast

Mahindra & Mahindra Ltd., which builds the Logan with Renault, is studying ways to expand that partnership, Pawan Goenka, president of Mahindra's auto business, said at an industry conference today in Detroit, without elaborating, according to a report by the Wall Street Journal.

Nissan, Japan's third-biggest carmaker, foresees "moderate'' U.S. sales growth this year, even as the world's biggest economy suffers a slowdown, Ghosn also said. The company's U.S. sales in 2007 rose 4.8 percent to 1.07 million cars and light trucks, while its market share was 6.6 percent, placing it fifth in the U.S. and third among Japanese brands.

"We wanted to have more significant growth, but we have to adjust to take account of the fact that the economy is weakening,'' while a recession is less likely, Ghosn said. He reiterated a forecast that the U.S. market will shrink to 15.5 million vehicles this year from 16.1 million in 2007.

Currency

The Japanese company is 44 percent owned by Boulogne- Billancourt, France-based Renault, which doesn't sell vehicles in the U.S. Nissan accounted for almost two-thirds of the French carmaker's 2006 earnings.

The yen's increase against the dollar has hurt Nissan less than Japanese competitors because the company has more U.S.- based manufacturing, Ghosn said. The dollar fell 6.3 percent against the yen last year. That reduced the value of U.S. revenue converted into the Japanese currency.

"We're less affected than some of our competitors because we have the highest percentage of North American-built cars'' for the market, Ghosn said. "The percentage of cars exported from Japan to the U.S. for Nissan is relatively limited.''

 

[Bushroda]

India Keeps Its Chin Up
Ruth David,
FORBES, NY
01.23.08, 9:50 AM ET

MUMBAI - You wouldn’t be able to tell with share prices crashing down just about everywhere, but a survey has found that Indian investors are the most optimistic in the Asia Pacific region. An overwhelming 93% said they expected the overall investment sentiment to be better this year than it was in 2008.

The ING Investor Sentiment Index was released a day after the Indian markets halted trading because the benchmark Sensex index on the Bombay Stock Exchange hit a circuit filter when it fell over 10%.

The 30-stock Sensex has lost around 20% of its value in the last week of trading sessions, dragged down by global worries about a U.S. recession and selling by foreign institutional investors.

It recovered some value on Wednesday, ending up 4.8%, at 17,530.81, after the Fed rate cut. The Morgan Stanley India Investment Fund (nyse: IIF - news - people ), a closed-end fund, opened 4.7%, lower at $44.26, on Wednesday morning in New York.

“Although the ING Investor Sentiment Index reveals that the subprime-led credit crunch and political uncertainties have made investors more cautious, core sentiment remained positive in the region as 2007 came to a close,” said Eddy Belmans, ING’s regional general manager, North Asia.

India’s economic boom will continue due to growth drivers like consumer spending touching new highs and a massive demand for products. The country's economy is expected to grow 8% this year, compared with 9.4% in 2007.

The ING survey, which didn’t track the market collapses of the last few days, found that the overall sentiment going into 2008 was robust, with investors in India, Hong Kong, and the Philippines among the most optimistic, while those in Japan, Australia, New Zealand and Taiwan were the most pessimistic.

Notably, the previous quarter’s enthusiasm by Chinese investors has been dampened.

More than 70% of investors in Hong Kong, China, Korea and Singapore said the credit crunch had affected their investment decisions in the past three months, while in India, the figure was 14%.

A majority of the investors in 9 out of the 13 markets (not including India, Indonesia, Australia and New Zealand) think the credit crunch will affect investment in the next three months.

The number of respondents who expected the United States economy to deteriorate in the next three months far outweighed those who expected it to improve.